# Tag Info

Accepted

### Calculating alpha and its meaning

Alphas from a time-series regression are error terms in the cross-sectional, linear relationship between expected returns and factor betas. If a factor model were correct those error terms (the alphas)...
• 6,954
Accepted

### Fama-French factor model: why mimicking portfolios?

The innovation of Fama and French's Three Factor Model wasn't in finding book to market ratios forecast returns but in reconciling that empirical regularity with the standard framework of macro-...
• 6,954
Accepted

### Why do anomalies disappear after they get detected?

The best explanation I have seen so far is the so-called Adaptive Market Hypothesis by Andrew Lo: The adaptive market hypothesis, as proposed by Andrew Lo, is an attempt to reconcile economic ...
• 27.5k
Accepted

### How are modern portfolio theory (MPT) and CAPM related?

CAPM states that the expected return of any given asset should equal $ER_i=R_f+β_i (R_m-R_f)$, with α being the error term of the previous equation. Now, as α has an expected value of zero, then only ...
• 516

• 1,456

### What’s the derivative of the sharpe ratio for one asset? Trying to optimize on it for a model

I agree that the paper could be much clearer: what it calls the “Sharp ratio derivative” is actually the “differential Sharpe ratio” proposed in a NIPS paper by Moody & Safell. In Section 2.2 of ...
• 200

### Most significant research articles for practical investors with research perspectives

A lot has happened since Markowitz and Sharpe. While their work is still considered foundational, the empirical/practical relevance of their models has been questioned by later work. Here are a few ...
• 9,382

### Portfolio Optimization and Global Minimum Variance Portfolio (GMV)

1) To be honest, any horizon is problematic in this respect. Simple sampling statistics 101 will tell you that the standard error around any estimate of true mean returns is the root time * variance. ...
• 5,071

### Contribution of an asset's variance to portfolio variance

In this answer, I am assuming that you want to keep correlations constant. To begin with, note that the $N\times N$ covariance matrix $\Sigma$ with element $\Sigma_{i,j}=Cov(x_i,x_j)$ can be written ...
• 6,663
Accepted

### Why isn't the asset with minimum variance given a 100% portfolio weight?

Diversification is key. The clear cut answer is diversification. A weighted combination of assets will more often than not show a lower return variance than even the asset with the lowest variance ...
• 6,663